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Tsinghua Unigroup of China to Buy 25% Stake in Two More Taiwanese Chip Assemblers

Such acquisitions seen to bring ample capital without management takeover

Dec 16, 2015 | By Ken Liu

Tsinghua Unigroup is aggressively buying into Taiwan's semiconductor industry. Tsinghua Unigroup is aggressively buying into Taiwan's semiconductor industry.
Tsinghua Unigroup of mainland China announced on Dec. 11 to acquire a 24.9 percent holding in Siliconware Precision Industries Co., Ltd. (SPIL) and a 25 percent stake in ChipMOS Technologies (Bermuda) Ltd. for total cost of NT$68.8 billion (US$2.02 billion) in a private placement each offered by the two Taiwanese companies.

This marks another of Tsinghua's acquisitions of shares in Taiwanese chip assemblers after signing a deal to acquire a quarter stake in Power Technology Inc. (PTI) for NT$19.4 billion (US$587.87 million). SPIL, PTI and ChipMOS are reportedly the island's No.2, No. 3 and No.4 chip assemblers.

Tsinghua is expected to submit the three partial acquisition deals to the Investment Commission of Taiwan's Ministry of Economic Affairs (MOEA) in late January next year for approval.

Tsinghua's acquisitions are generally welcome by the targeted companies for what the investor brings: ample capital instead of management takeover.

For SPIL, the acquisition by Tsinghua is more than just a matter of capital. The acquisition of SPIL shares came amid corporate battle between SPIL and Advanced Semiconductor Engineering Inc. (ASE), reportedly Taiwan's No.1 chip assembler. SPIL has said that ASE had been trying to maliciously acquire its shares with the view to take over its management right. To fend off such incursion, SPIL Chairman W.B. Lin invited the Foxconn Technology Group to take a stake. However, SPIL's foreign institutional shareholders vetoed the invitation in an extraordinary meeting held on Oct. 15 to accept ASE regardless of the strong support from minor shareholders and the company's employees for the chairman's move.

The frustrated Lin then soon organized an investment company with the company's allies to find other interested suitors to take on ASE. The investment company finally decided to invite mainland Chinese investors, which are restricted by Taiwan's regulations as pure shareholders in local chip companies.  

Tsinghua's acquisition unseats ASE to become SPIL's biggest shareholder, whereby the new shares SPIL offered to Tsinghua has diluted ASE's ownership in SPIL to 18.77 percent from 24.99 percent.

SPIL's deal with Tsinghua has caught everyone off guard, especially ASE, who has remained reticent about the deal.

Maximize Corporate Interest
Denying the deal is designed to offset ASE's influence in the company, Lin says that the cooperation with Tsinghua is done to maximize the interest of the company's shareholders. He notes that the company usually offers discounted shares to investors in most private placements, but Tsinghua has been offered shares at 20 percent premium or NT$55 per share. “I think ASE should sign off on this deal,” he says.

Lin points out that the private placement offered to Tsinghua will likely turn Tsinghua's ever-increasing semiconductor subsidiaries worldwide into SPIL's customers in addition to helping his company fortify its existing customer base.

He says the company will use 80 percent of the proceeds from Tsinghua's investment on its employees and operational projects in Taiwan and the rest on its operations in mainland China and elsewhere.

Taiwan's industry executives are really impressed by the significant size of the capital that Tsinghua has invested in the three Taiwanese chip assemblers. Among them is chairman of Pegatron Corp. and the current chairman of the Taipei Computer Association, T.H. Tung, who points out that mainland China is using its huge market as bargaining chip to sway competitors to transplant to and share technologies with China, which is aggressively developing its homegrown semiconductor industry.

Hostility Ill-advised
“If Taiwan's tech industries refuse to work with mainland investors, they could lose access to the mainland's vast market,” he says. He suggests that Taiwan's tech manufacturers need to tone down their hostile attitude towards the mainland so as to view objectively their competency and their mainland Chinese partners.

Tung points out that it is the relatively low price-earning ratio (E/P ratio) of Taiwan's listed tech companies that draw investors from the mainland and the world to buy into Taiwan's tech companies. Such ratio is only seven to 10 for Taiwan's tech stocks, compared with 20 to 30 for the mainland's tech stocks, he notes. “If we do not suspect foreign investors of invading Taiwan's tech industries like Foxconn and Pegatron by taking advantage of the low P/E ratio, why would we suspect the mainland's investors of encroaching on Taiwan's tech companies by doing the same thing as the foreign investors?” he asks.

Tung points out that it makes sense for the mainland to develop its homegrown semiconductor industry given that its import of semiconductors far exceed its import of oil in terms of revenue. “If Taiwanese manufacturers refuse to work with the mainland's manufacturers, the mainland's vast market will sooner or later develop its own technology for an indigenous semiconductor industry, to put Taiwanese manufacturers at competitive disadvantage,” he warns.

R&D Success
The TCA Chairman notes that many mainland Chinese tech manufacturers have achieved considerable success in R&D without government funding. For instance, many mainland Chinese tech companies now approach his company with cooperation offers instead of groveling for permission to visit the company as previously whenever the company has introduced something new, suggesting the mainland's manufacturers have built enough R&D strength to cooperate with Taiwan's counterparts on equal footing.

Executives of Taiwan's top semiconductor companies point out that the cash-rich mainland Chinese semiconductor manufacturers with aggressive global plans need not choose to work with their Taiwanese counterparts, which are mostly struggling for new capital and new markets to overcome developmental bottlenecks they face now. They worry if the mainland's makers turn to South Korean tech firms, Taiwan's arch competitors on many fields of global markets, Taiwan's tech companies will have to overcome even tougher challenges. “Will Taiwan's tech firms be better off by shutting out mainland's investors? This question deserves our consideration,” says a tech insider.

However, Director General Zichen Du of the government-financed Industrial Economics and Knowledge (IEK) has openly objected to Tsinghua's acquisition of SPIL, commenting the share sale is tantamount to selling Taiwan's interest to the mainland from the viewpoint that SPIL is simply selling a stake to Tsinghua to ward off ASE, not for business expansion.

But Du advocates TSMC's plan to open an eight-inch wafer fab in Nanjing to make 16-nanometer chips and MediaTek Corp.'s plan to to sell a partial stake to mainland Chinese investors.

Naysayer
P.J. Liu, a research fellow at the non-profit Taiwan Institute of Economic Research, warns that Tsinghua will be able to rapidly boost its presence on the global semiconductor market by buying into the three Taiwanese chip assemblers, which own expertise in memory-chip, logic-chip, and high-end chip packaging and testing, respectively. “But that would be a shame to Taiwan's semiconductor industry,” she stresses.

She analyzes that Tsinghua's acquisitions will make Taiwan's chip assemblers unable to work together to compete on the global market, where the island is the No.1 supplier of chip packaging and testing services with a share of approximately 50 percent, far leading the 15 percent estimated to be captured by the distant No.2 mainland China by the end of 2015. She notes that without team effort, ASE alone can hold only 18 percent.

The research fellow says that ASE just wants to team up with SPIL against the rising mainland China red supply chain, from which ASE feels competitive threat after reports that the mainland's Jiangsu Changjiang Electronics Technology Co., Ltd. is poised to challenge ASE for Apple orders with its newly equipped system-in-package (SIP) capability.

Opposed to Liu and Du's perspective on Tsinghua's acquisition deals in Taiwan, Hua Nan Securities Investment Management Co., Ltd. Chairman H.S. Tsu feels upbeat about cooperating between the mainland Chinese company and Taiwan's manufacturers in consideration that the leading status of Taiwan's semiconductor industry on the global market will sooner or later be replaced by the mainland's rising supply chains. Holding stakes in Taiwanese firms would actually prompt such mainland manufacturers to think twice before recklessly expanding their capacity, he notes.

Pro-Tsinghua
ProMOS Chairman S.J. Chen points out that his company has no qualms about Tsinghua's investment on grounds that the two companies complement each other in expertise and share the same business idea not to mention that many of Tsinghua's reinvested businesses in chip packaging and testing, and liquid crystal display (LCD) sectors are his company's existing customers.

The two companies, he adds, will work together on such fields as LCD drive ICs, micro electromechanical system (MEMS) and Internet of Things (IoT).

Chen discloses that TSMC's Nanjing plan advocates Tsinghua to accelerate its acquisition of his company's stocks.

Some Taiwanese industry executives point out that Tsinghua's acquisitions of Taiwan's chip assemblers underscore China's policy to set up integrated capability of its semiconductor industry by helping Tsinghua make overseas acquisitions, and Semiconductor Manufacturing International Corp. (SMIC), the mainland's No.1 homegrown chipmaker, develop advanced processing technologies.

M.B. Chang, executive secretary general of the Investment Commission, points out that the chances for the three Tsinghua deals to pass the commission's approval at once is unlikely since holding three of the island's top-four chip assemblers by a mainland company could upset the status quo of the global IC packaging and testing industry. 


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